‘Barron’s Roundtable’ panelists Alissa Coram, Ben Lewisohn and Al Root discuss the top three stories investors should know from the week.
deadly wildfire The destruction that devastated the Los Angeles area of Southern California over the past week is estimated to be the costliest in the state’s history, causing significant losses for insurers operating in the state.
The wildfire, which was caused by Santa Ana’s strong winds through largely dry areas Los Angeles areaAt least 24 people have died as nearly 40,000 acres of land burns. Communities such as Pacific Palisades, Malibu and Altadena were particularly hard hit, with more than 12,000 structures destroyed or damaged.
Initial estimates put insured losses from the wildfires as the costliest in California history. An analysis from JPMorgan last week estimated that insured losses could exceed $20 billion, while Wells Fargo’s weekend estimate put insured losses at $30 billion, within a range of $20 billion to $40 billion. Could. Both estimates would exceed $10 billion in insured losses caused by the 2018 Camp Fire, which affected the city of Paradise and neighboring communities in Northern California.
Moody’s Ratings prepared an analysis last week that examined the largest insurers in California using S&P Global Market Intelligence data based on full-year data through 2023, as annual data through 2024 is not yet available.
The Palisades fire devastated the Los Angeles community of Pacific Palisades. (Accel/Bauer-Griffin/GC Images/Getty Images)
It found that the insurer is the most direct homeowner insurance The leader in premiums written in California in 2023 was State Farm, which had more than $2.7 billion in premiums written for residences in the Golden State.
Farmers Insurance ranks second with more than $2 billion in California homeowner premiums. It was followed by Liberty Mutual with $908 million, CSAA Insurance Exchange with $895 million and Mercury Insurance with $839 million. Other insurers with more than $700 million in California homeowner premiums in 2023 were Allstate ($792 million), USAA ($742 million) and Auto Club ($720 million).
Moody’s Ratings found that the insurers whose California homeowners business accounted for the largest share of their total U.S. homeowners insurance policies were Mercury (19%), CSAA (15%) and Auto Club (12%).
California wildfires: Wells Fargo analysis shows insured losses could exceed $30B
Aerial view of homes destroyed by the Palisades fire on January 9, 2025. (Mario Tama/Getty Images/Getty Images)
JPMorgan’s analysis also included 2023 homeowners insurance data in California based on regulatory filings and data from S&P Financial. This included similar figures for written premiums with some minor differences, and also included insurers’ estimates. market share In the California homeowners insurance market through 2023.
State Farm had the largest California market share in 2023 with 19.9%, followed by Farmers Insurance with 14.9%, as well as CSAA Insurance Exchange and Liberty Mutual with 6.5%. Other insurers with more than 5% market share in California in 2023 include Mercury Insurance (6.1%), Allstate (5.8%), Auto Club Insurance (5.8%) and USAA (5.4%).
California wildfires could cost insurers $20B, the most in state history
Chimneys stand amid debris after the Palisades Fire passed in Pacific Palisades, California on January 8, 2025. (Augustin Polier/AFP via Getty Images/Getty Images)
Despite historically large estimates of insured losses Southern California wildfires“Regardless of the outcome, we view this as a manageable event for insurers,” Wells Fargo wrote in its analysis, adding that on $40 billion of insured losses it would be “a 2.0% hit to equity.” Will represent.”
Many major insurance companies have stopped offering new homeowners or commercial insurance policies in fire-prone areas in recent years, while some have canceled policies or refused to renew them due to excessive risk. .
California insurance crisis: List of carriers that have fled or reduced coverage in the state
An apartment fire is seen from the Eaton Fire in Altadena on January 8, 2025. (John Putman/Anadolu via Getty Images/Getty Images)
Insurers have also increased premiums to account for the risk of wildfires and other disasters, although state law restricts those increases and premium increases above 7% require special approval and a three-year limit. Spread over the period.
Homeowners who have lost their coverage or can no longer afford the high premiums and have failed to find a private insurance policy can use California’s FAIR plan, which is an insurer of last resort and charges even higher premiums.
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Moody’s Ratings found that by September 2024, exposure under the FAIR plan in Los Angeles County stood at approximately $112 billion, representing approximately 23.1% of the entire FAIR portfolio, after a year-on-year increase of approximately 53%.
